3d Party Issues Flashcards
What is entrustment (UCC)?
Under Art. 2/UCC
ON BAR EXAM, ENTRUSTMENT PROBLEMS =
(i) Owner of goods;
(ii) voluntarily entrusts goods to a MERCHANT who deals in goods of the kind (e.g. a dealer);
(iii) Person w/whom goods are left is to perform some service w.r.t. goods (e.g. repair)
(iv) Service provider wrongfully sells goods that were supposed to be merely serviced to a bona fide purchaser
RULE:
OWNER has NO rights against a bona fide purchaser (BFP) if the merchant wrongfully sells the goods
DELEGATION of DUTIES
What is a delegation?
When can K duties be delegated AND what are the rights of the obligee?
A DELEGATION IS: a 3rd party performance obligation (like sub-contractors) (it is a transfer of duties/burdens)
WHAT DUTIES ARE DELEGABLE?
General rule: K duties MAY be delegated W/O consent of the person to whom performance is owed (the “obligee”)
LIMITATIONS ON ABILITY TO DELEGATE:
(i) The K language cntrls (if delegation is prohibited, CANNOT delegate)
→ NOTE: If K prohibits assignment (this means NO delegation EITHER!)
ALSO
(ii) Personal Services Ks that call for Special Skill or Reputation cannot be delegated
THIRD PARTY BENEFICIARIES
What is a 3d party beneficiary AND what rights does she have?
WHAT IS A 3PB?
3PB arrises when TWO ppl enter into a K intending to benefit a 3d party
→ NOTE: A 3PB is NOT a party to the K, but has RIGHTS b/c the K intended to benefit her
→ NOTE (USE EXACT WORDING ON BAR EXAM):An INTENDED beneficiary has legal rights, BUT an INCIDENTAL beneficiary DOES NOT → Two types of intended beneficiaries:
(i) CREDITOR beneficiary = is getting benefit b/c a debt is owed to him; OR
(ii) DONEE beneficiary (more likely) = performance is given as a gift
RIGHTS OF 3PB
1) Rescission and modification of a 3PB K (pre-vesting): General rule = the promisor (person making the promise/whos actions will benefit the 3PB) and promisee (person who originally had the promise that is benefiting the 3PB) CAN rescind or modify the K UNTIL the rights of the 3PB have “vested”
2) VESTING of 3PB Rights:
Vested means the intended beneficiary has
(i) MANIFESTED ASSENT to the K;
(ii) brought SUIT to enforce K; OR
(iii) has RELIED on the K (i.e. you an AFFRIMATIVE act)
3) Rescission and modification of a 3PB K (post-vesting): Once the rights of the 3PB have “vested”, the original parties NEED the consent of the 3PB in order to modify/recind the K
NOTE: any contrary language to this in the K cntrls!
4) Liability → WHO CAN SUE WHOM?
A. The 3PB CAN sue the PROMISOR for breach of K (privity is not necessary) (promisor can assert any defense he would have had against the promisee) B. The PROMISEE can recover from the PROMISOR → NOTE: 3PB AND PROMISEE CANNOT BOTH SUE PROMISOR C. 3PB CAN NOT sue the PROMISEE UNLESS 3PB is a CREDITOR BENEFICIARY (creditor beneficiary can recover but ONLY on pre-existing debt) (promisee is liable to a CREDITOR beneficiary b/c the creditor is owed somethin); (DONEE beneficiary has no rights against promisee)
ASSIGNMENT
What is anassignment?
Assignment = after two ppl make a K; LATER one (assignor) transfers his rights to a 3d party (assignee) The party who owes the duty to preform is the obligor (this person wasn’t involve in the assignment shenanigans)
The obligor is liable to the assignee, BUT ONLY IF (i) the assignor performs properly under K (no material breach); AND (ii) the obligor is AWARE of the assignment
E.g. Batman Ks to provide security for Gotham for $200. Batman (assignor) assigns HIS RIGHT to payment to Robin (assignee). NOW, Robin has the right to receive pmt from Gotham City (obligor)
NOTE: w/ an assignment, two parties K and a 3d person shows up LATER; THIS IS DIFFERENT that with a 3d party beneficary b/c in that situ the 3d party is PRESENT at time of contracting
ASSIGNMENT
What’s needed for a validassignment AND what are the restrictions on assignment?
NOTE: NY Distinction
1) CANNOT ASSIGN an OFFER UNLESS it is an OPTION OFFER (remember that an assignment is a transfer of rights under a contract)
1) Must have language of PRESENT transfer → ACCEPTABLE LANGUAGE: “I assign…”
→ NOT ACCEPTABLE LANGUAGE: “I promise to assign…”
2) Consideration or a writingis NOT required
→ Gift assignments are valid BUT easily revoked
→Oral assignments are valid
***NOTE: NY DISTINCTION: GRATUITOUS ASSIGNMENT IN WRITING ARE IRREVOCABLE (NY Gen. Oblig. Law)
3) Restrictions on assignment in K Language
→ NOTE: K language controls BUT distinguish b/t a cl that PROHIBITS assignment from that which INVALIDATES assignments
→ EVEN IF assignments are prohibited (“Rights under this K are not assignable”), a VALID assignment can exist (i.e. an assignee who does not know of the prohibition can sue the obligor)
→ BUT If language states that assignments are INVALID (“All assignments under this K are void”), then any assignment is VOID
4) Cannot SUBSTANTIALLY change duties of the obligor NOTE: assignment of pmt never a substantial change
NOTE: assignment of contract right that is performance other than pmt ALWAYS a substantial change (on Bar Exam)
ASSIGNMENT
With multiple assignments, which assignee has rights?
NOTE: NY Distinction
1) Gratuitous (“gift”) assignments are EASILY revoked by assignor (UNLESS there is detrimental reliance by the assignee from the obligor’s performance)
The LAST gratuitous assignee PREVAILS over early gratuitous assignees b/c the later gift assignment revokes the earlier one
NY DISTINCTION: a gift assignment is IRREVOCABLE if embodied in a signed writing by the ASSIGNOR
2) Assignments for consideration are more DURABLE General rule: the FIRST assignee for consideration PREVAILS over all subsequent assignees (as well as gratuitous assignees)
VERY VERY VERY LIMITED EXCEPTION: a later assignee for consideration prevails IF he…
(i) does not know about the earlier assignments; AND
(ii) is the first to ACTUALLY RECEIVE:
(i) Payment
(ii) Judgement
(iii) Novation; OR
(iv) Indicia of Ownership
(“FOUR HORSEMAN” Rule)
(NOTE: being first to notify the obligor that pmt is due DOES NOT COUNT - do not confuse this w/the Art. 9 “first in time” rule)
ASSIGNMENT
Liability → WHO CAN SUE WHOM?
Liability → WHO CAN SUE WHOM?
1) ASSIGNEE can recover from the OBLIGOR
2) ASSIGNOR can recover from the OBLIGOR
BUT
ASSIGNOR FOR CONSIDERATION CANNOT recover from the OBLIGOR
→ NOTE: Obligor has same defenses against Assignee as it would have against Assignor
→ NOTE: ANY Payments by Obligor to Asignor are effective UNTIL Obligor knows of the assignment
→ NOTE: ANY Modification agreement between Obligor and Assignor are effective IF Obligor did not know of the assignment
ASSIGNMENT
What implied WARRANTIES of the ASSIGNOR EXIST when there is an Assignment for Consideration
WHEN assignment is for CONSIDERATION, the ASSIGNOR WARRANTS:
- The right assigned actually exists
- The right assigned is not subject to any then existing defenses by the Obligor
- The assignor will do nothing after the assignment to impair the value of the assignment
→ NOTE: Assignor DOES NOT warrant what the Obligor will do after the assignment
DELEGATION
Liability → WHO CAN SUE WHOM?
(Guaranteed Bar Question)
RIGHTS OF THE OBLIGEE…
The Delegating party ALWAYS REMAINS liable to obligee (COMPARE w/novation)
BUT
A Delegatee WHO GETS CONSIDERATION is liable to the obligee (b/c this would make the obligee a 3d party beneficiary)
DELEGATION vs. ASSIGNMENT
A CONTRACT CREATES RIGHTS & DUTIES
ASSIGNMENT = The transfer of a party to a contract of his RIGHTS or BENEFITS
DELEGATION = The transfer by a party to a contract of HIS DUTIES or BURDENS
(Note: Sometimes the MBE will refer to a assignment and delegation together as an assignment or even refer to a delegation as an assignment)
